Viewed as the stock market’s foremost beacon of strength for much of 2017, tech companies have felt pressure as traders have sold out of expensive positions in order to finance purchases of lagging sectors, like financials and telecom.
This dynamic was at play on Monday, with the more tech-heavy Nasdaq 100 index declining 0.4%, while the S&P 500 climbed 0.5% and the Dow Jones Industrial Average surged 1%. It mirrored price action on Friday, when the Nasdaq dropped twice as much as the S&P 500, even after the latter dropped as much as 1.5% on an intraday basis.
So why has tech become such a lightning rod for fluctuations as the stock market heads into a new volatility regime? First off, tech stocks have reached nearly unprecedented valuations. Second, the sector already has the third-lowest tax rate out of any industry, according to data compiled by S&P Global.
That means they’re less likely to gain from a corporate tax cut — and investors are recognizing that by pulling money and allocating it elsewhere.
The elite FANG contingency — consisting of Facebook, Amazon, Netflix and Google — has served as a microcosm for tech sector volatility over the last week. Last Wednesday, the group saw $60 billion in market value erased, the most in five years, before rallying 1% the following day.
In the end, while tech has weakened as volatility has picked up, price swings are ultimately a good thing for investors. The more fluctuations there are, the more opportunity there is to profit from inefficiencies and dislocations.